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Special RBI Briefing: "Focusing On Light in The Darkest Moments"

The RBI Governor announced liquidity support measures for healthcare and small businesses. Key measures included additional bond purchases, an on-tap liquidity window for COVID related healthcare infrastructure, LTROs for small finance banks, and restructuring of loans for COVID stressed borrowers.

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Vipin Arora
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27 views

Special RBI Briefing: "Focusing On Light in The Darkest Moments"

The RBI Governor announced liquidity support measures for healthcare and small businesses. Key measures included additional bond purchases, an on-tap liquidity window for COVID related healthcare infrastructure, LTROs for small finance banks, and restructuring of loans for COVID stressed borrowers.

Uploaded by

Vipin Arora
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Special RBI Briefing

- 05th May 2021

”Focusing on light in the darkest moments”


Summarizing the key takeaways
The RBI Governor’s unscheduled speech today on 05th May 2021 revolved around announcing of
liquidity support to some of the sections of society from the healthcare industry to the small and MSME
businesses.

Normal south-west monsoon predictions by IMD, April 2021 PMI at 55.5 and forex reserves at $588bn as of
30th April 2021 do add comfort in these trying times. However, with the relentless COVID-19 second wave
disrupting the status quo, it was important for relief measures to be injected into the system. An on-tap
liquidity support to fight COVID, along with rationalizing KYC norms in the short term are some of
operational and procedural measures announced. Inflation could be a concern later, but today is not
the time to devote to it.

# Key measures announced

1 Second purchase of Govt securities for aggregate amount of 35000cr on 20th May 2021

This should continue to quell concerns over rising bond yields and bring the yield below the 6%
threshold providing comfort to the bond market
Ramping up of COVID related healthcare infrastructure with an on-tap liquidity window of INR
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50,000 cr (up to 3 years tenor) at repo rate opened until 31st March 2022
An imperative requirement that will enable much needed infrastructure addition. Moreover,
the availability of liquidity to importers/suppliers will enable more procurement.
3-year LTROs worth INR 10,000cr with limit of INR 10 lakh per borrower for SFB scheme. SFB on-
3 lending to MFIs categorized as priority sector. SFBs allowed to on-lend to smaller MFIs of asset
size up to INR 500cr - till 31 March 2022
On-lending to smaller MFIs being categorized as priority sector lending will help SFBs lend to
MFI’s given, they are the best placed to understand the local small MFI markets in which they
operate.
Resolution framework 2.0 for covid related stressed assets
For borrowers up to INR 25cr who have not availed restructuring earlier and classified
‘standard’ as of March 2021 - will be considered for restructuring till 30th Sept 2021
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For those who have availed Resolution Framework 1.0 with moratorium of less than 2 years and
those who were restructured earlier - measures of extend moratorium period to up to 2 years
and relief on working capital sanctions based on conditions
RBI has gone with the industry demand to not go for a moratorium but for restructuring.
Given the fragmented nature of the lockdown compared to the complete shutdown this looks
to be a more targeted approach. But given the discretion provided to bank there is scope for
inefficient implementation.
Counter cyclical provisioning buffer held by banks as of December 2020 can be utilized to
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make provisions for NPAs up to March 2022 but after Board approvals
While this is good for the books of accounts of the banks but does not have significant impact
on the current state of stress in the system.
6 Overdraft tenor for states increased to 50 days from current 36 days

A fortnight worth of more liquidity would add to the state’s resources

Rationalizing KYC requirements including (1) extending scope of V-CIP for new categories of
customers, (2) conversion of limited KYC accounts opened on basis of Aadhar e-KYC
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authentication in non face to face mode to fully compliant KYC and (3) no punitive impositions,
unless warranted, on any due or pending periodic KYC requirements till 31st December 2021

This reduces the burden on the society to get KYCs completed and helps push the digital
agenda.
Expert views

In a bid to support businesses the RBI has re-opened one-time


restructuring for individuals and MSMEs. This step will go a long way
in ensuring liquidity and business continuity for individuals and
businesses struggling with the impact of the second wave of
COVID-19. Just as was needed in August last year, one-time relief
restructuring for stressed firms has been the need of the hour, as
various state-level lockdowns have disrupted businesses across
sectors. By allowing the period of moratorium to be extended up
to a total of 2 year will provide a fresh lease of life to MSME
businesses amidst this unprecedented crisis.

The RBI increasing the overdraft duration for states for a maximum
Ramesh Abhishek of 50 days, from the 36 days earlier, will provide much-needed
Former Secretary DPIIT, financial support to state Governments as they battle the second
Government of India wave of COVID-19. While states focus on containing the
exponential spread of the virus, many have had to announce
regional lockdowns, significantly impacting economic activity.
Additionally, with resources directed towards health, states
needed support to tide over the economic impact of the crisis.

RBI has been proactive and targeted in its action, be it supporting the
COVID response by providing capital at low cost to key players like
hospitals, vaccine manufacturers etc. by creating a new covid loan
book facility or addressing the lockdown impact on MSME and
individuals by taking multiple steps like allowing restructuring of loans
including extension for loans less than Rs 25 Cr, SLTRO for SFBs, Review
of working capital limits, Rationalization of KYC etc.

RBI has taken the right decision of not going for a blanket moratorium
and used the restructuring route. IT will be critical how the banks and Shravan Shetty
NBFCs utilize these facilities to keep the engines of India’s growth MD – Financial Services,
running. Primus Partners

DISCLAIMER

The report is prepared using information of a general nature and is not intended to address the circumstances of any particular individual
or entity. The report has been prepared from various public sources and the information received from these sources is believed to be
reliable. The information available in the report is selective and subject to updation, revision and amendment. While the information
provided herein is believed to be accurate and reliable, Primus Partners Pvt. Ltd. does not make any representations or warranties,
expressed or implied, as to the accuracy or completeness of such information and data available in the public domain.

While due care has been taken while preparing the report, Primus Partners Pvt. Ltd. does not accept any liability whatsoever, for any direct
of consequential loss arising from this document or its contents.

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